Assessing the Poverty and Vulnerability Impact of Micro-credit in Bangladesh: A Case Study of BRAC
Zaman, H.
Publication Date: 1999
Published by: World Bank
Document Type: Paper
Does micro credit reduce poverty and vulnerability?
This paper explores the relationship between micro credit and the reduction of poverty and vulnerability, by focussing on one of the largest micro credit providers in Bangladesh - BRAC. The paper discusses a number of pathways by which vulnerability can be reduced:
- Strengthening crisis-coping mechanisms;
- Building assets;
- Empowering women.
The author cites empirical evidence to suggest that there may be a threshold cumulative loan size beyond which micro credit can make a significant dent on poverty. Increases in income can occur if credit is used for an income generating activity and that activity generates returns in excess of the loan instalment repayment. However, when the credit-financed investment does not generate a significant net profit, an asset is created which can reduce vulnerability but will not reduce poverty as the loan instalment repayment takes place through a reduction in consumption and not from returns on the investment.
The paper concludes by stating:
- The savings collected by organizations like BRAC could have greater impact on reducing poverty than what they currently do.
- Micro credit may be a more effective remedy against poverty and vulnerability if it is complemented with other interventions.
- Social mobilization and legal education intervention, in conjunction with credit, is likely to have a more significant effect than credit alone in enhancing a the status of women in society.
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